Notes for trust officers, private bankers and others concerned with estate and trust planning, from a Merrill Anderson Senior Editor and his retired mentor.

Sunday, September 09, 2007

Restaurants: a Hedge Fund Alternative?

Hold the hedge funds. Accredited investors (those worth $1 million+ or with incomes of $200,000 or more) are putting money into restaurants. So reports The Washington Post:

Many restaurant owners and chefs around the country rely on wealthy private investors with an appetite for risk to help open the doors their new restaurants. Chef Robert Wiedmaier recently tapped private investors for sums of $50,000 to $200,000 for the more than $3 million he needed to open Brasserie Beck in the District. Michel Richard, the world-famous chef behind the seriously expensive Citronelle, raised about $3 million from 44 investors to open Central Michel Richard, a modern bistro.

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"The country is just extremely interested in food right now, much more than ever before," said Mark B. "Chipp" Sandground Jr., a lawyer at Kalbian Hagerty who represents Wiedmaier, Richard and many other District chefs and restaurant owners. "People use restaurants so much now. They are not just for going out for their anniversary. People go out all the time. Pretty much everyone has an opinion on a new restaurant."

But that does not mean the opinions are always positive. The American palate is fickle, and a few bad meals served up to a particularly chatty customer base -- or, worse, a powerful reviewer -- can quickly sink a restaurant. That, in large part, is why Sandground and his chef clients constantly remind potential investors this: Investing in restaurants is not for everyone. As Wiedmaier says, a restaurant investor must be able to say, "If I lose it all, great, at least I had fun." Asked who should invest in restaurants, Sandground said: "Easy. I can sum it up in one sentence: People who can afford to lose 100 percent of their investment."

Investing in D. C. restaurants has attracted young professionals with high net worths for some time. See this report in the International Herald Tribune. On the West Coast, the trend heated up in dot.com days, according to this 1999 item.

For investors strong of stomach and not faint at heart, upscale eateries have obvious appeal. If a hedge fund goes bust, you merely lose your money. If your restaurant goes bust, you lose your money but first you can enjoy one last dinner.